Alaska Air Group Reports 2007 Full Year and Fourth Quarter Results
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Alaska Air Group, Inc. today reported full year net income of $125.0 million, or $3.09 per diluted share, compared to a net loss of $52.6 million, or $1.39 per share, in 2006. The prior year...
Alaska Air Group, Inc.
The company reported fourth quarter net income of $7.4 million, or $0.19 per diluted share, compared to a net loss of $11.6 million, or $0.29 per share, in 2006. Similar to the items noted above, both periods include mark-to-market fuel hedge accounting adjustments and 2006 includes a favorable adjustment related to the voluntary severance programs. Excluding the impact of these adjustments, the company would have reported a fourth quarter net loss of $17.9 million, or $0.46 per share, compared to a net loss of $3.4 million, or $0.08 per share, in 2006. A reconciliation of these non-GAAP measures can be found on page 6.
"It’s frustrating to report a fourth quarter adjusted loss in what has been a solid year relative to other carriers," said Bill Ayer, chairman and chief executive officer. "The loss was driven primarily by skyrocketing fuel costs combined with fares that have not kept pace. However, our fleet transition, fuel hedging program and other efforts to reduce fuel consumption put us in an excellent position to compete in this difficult environment."
Alaska Airlines’ mainline passenger traffic in the fourth quarter increased 6.0 percent on a capacity increase of 4.6 percent. Load factor increased by 1.0 percentage points to 74.7 percent. Alaska’s mainline operating revenue per available seat mile (ASM) increased 2.7 percent and its operating costs per ASM excluding fuel and the special items mentioned above decreased 3.0 percent from the prior year. Alaska’s total pretax income for the quarter was $15.2 million, compared to a pretax loss of $12.1 million in 2006. Excluding the items noted above, Alaska would have reported a pretax loss of $18.8 million for the quarter compared to a $1.9 million pretax loss in the fourth quarter of 2006.
Horizon Air’s combined passenger traffic in the fourth quarter increased 9.7 percent on a 10.3 percent capacity increase. Load factor declined by 0.4 percentage points to 72.6 percent. Horizon’s combined operating revenue per ASM increased 3.9 percent and its operating costs per ASM excluding fuel decreased 0.8 percent. Horizon’s total pretax loss for the quarter was $4.8 million, compared to a pretax loss of $3.5 million in 2006. Excluding mark-to-market fuel hedge accounting adjustments, Horizon’s pretax loss was $11.2 million for the quarter, compared to a pretax loss of $0.5 million in the fourth quarter of 2006.
Alaska Air Group had cash and short-term investments at Dec. 31, 2007, of $823 million. The company repurchased 2,593,282 shares of its common stock for $62.8 million through Dec. 31, 2007, pursuant to the $100 million share repurchase program authorized by the Board of Directors in September 2007. As of yesterday, the company had repurchased 3,292,882 shares of its common stock for a total of $79.3 million.
A summary of financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found on pages 7 through 11.
A conference call regarding the full year and fourth quarter 2007 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Jan. 24, 2008. It can be accessed through the company’s Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors.
References in this report to "Air Group," "company," "we," "us," and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."
This report contains forward-looking statements that are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "forecast," "may," "will," "could," "should," "expect," "plan," "believe," "potential" or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; the implementation of our growth strategy; the amounts of potential lease termination payments with lessors for our remaining MD-80 leased aircraft and related sublease payments from sub lessees, if applicable; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2006. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
Alaska Airlines and Horizon Air together serve 92 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions, Except Per Share Amounts)
Three Months Twelve Months
Ended December Ended December
31, 31,
2007 2006 2007 2006
Operating Revenues:
Passenger $784.3 $724.6 $3,236.5 $3,083.0
Freight and mail 22.2 22.5 97.8 97.3
Other - net 46.9 43.2 171.7 154.1
Total Operating Revenues 853.4 790.3 3,506.0 3,334.4
Operating Expenses:
Wages and benefits 243.2 240.8 957.9 937.0
Variable incentive pay 3.6 12.7 20.8 36.8
Aircraft fuel, including hedging
gains and losses 220.5 219.8 876.3 873.5
Aircraft maintenance 65.1 62.1 241.8 230.7
Aircraft rent 45.2 43.6 178.4 180.2
Landing fees and other rentals 56.7 51.6 226.0 204.0
Contracted services 41.8 38.9 160.6 153.2
Selling expenses 37.7 36.7 160.5 169.3
Depreciation and amortization 45.1 43.4 177.4 157.5
Food and beverage service 12.8 12.9 49.7 51.2
Other 62.8 53.6 230.5 214.0
Fleet transition costs - Alaska - - - 189.5
Fleet transition costs - Horizon 3.5 - 14.1 -
Restructuring charges and adjustments - (7.6) - 24.8
Total Operating Expenses 838.0 808.5 3,294.0 3,421.7
Operating Income (Loss) 15.4 (18.2) 212.0 (87.3)
Nonoperating Income (Expense):
Interest income 11.9 14.9 53.9 54.3
Interest expense (21.7) (20.4) (88.0) (78.0)
Interest capitalized 6.9 7.1 27.8 24.7
Other - net (2.9) - (4.1) (1.5)
(5.8) 1.6 (10.4) (0.5)
Income (loss) before income tax 9.6 (16.6) 201.6 (87.8)
Income tax expense (benefit) 2.2 (5.0) 76.6 (35.2)
Net Income (Loss) $7.4 $(11.6) $125.0 $(52.6)
Basic Earnings (Loss) Per Share: $0.19 ($0.29) $3.12 ($1.39)
Diluted Earnings (Loss) Per Share: $0.19 ($0.29) $3.09 ($1.39)
Shares Used for Computation:
Basic 39.210 40.214 40.125 37.939
Diluted 39.393 40.214 40.424 37.939
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
December 31, December 31,
(In Millions) 2007 2006
Cash and marketable securities $823 $1,014
Total current assets 1,391 1,572
Property and equipment-net 2,962 2,359
Other assets 138 146
Total assets $4,491 $4,077
Current liabilities $1,388 $1,236
Long-term debt 1,125 1,032
Other liabilities and credits 954 923
Shareholders' equity 1,024 886
Total liabilities and shareholders'
equity $4,491 $4,077
Debt to Capitalization, adjusted for
operating leases 70%:30% 72%:28%
Number of common shares outstanding 38.051 40.294
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.'s net income (loss)
and amounts per share during 2007 and 2006 excluding adjustments to
reflect the timing of gain or loss recognition resulting from
mark-to-market fuel-hedge accounting, fleet transition costs related to
the impairment of the MD-80 fleet, and restructuring charges and
adjustments, as reported in accordance with GAAP (in millions except per
share amounts):
Three Months Ended December 31,
2007 2006
Dollars Diluted Dollars Diluted
EPS EPS
Net loss and diluted EPS, excluding
mark-to-market hedging adjustments,
and restructuring charges $(17.9) $(0.46) $(3.4) $(0.08)
Adjustments to reflect the timing of
gain or loss recognition resulting
from mark-to-market fuel-hedge
accounting, net of tax 25.3 0.65 (13.0) (0.33)
Restructuring charges and
adjustments, net of tax - - 4.8 0.12
Reported GAAP amounts $7.4 $0.19 $(11.6) $(0.29)
Twelve Months Ended December 31,
2007 2006
Dollars Diluted Dollars Diluted
EPS EPS*
Net income and diluted EPS, excluding
mark-to-market hedging adjustments,
Alaska fleet transition costs, and
restructuring charges $92.3 $2.28 $137.7 $3.45
Effect of dilutive shares* NA 0.17
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market fuel-hedge accounting,
net of tax 32.7 0.81 (56.3) (1.48)
Fleet transition - Alaska, net of tax - - (118.5) (3.12)
Restructuring charges and
adjustments, net of tax - - (15.5) (0.41)
Reported GAAP amounts $125.0 $3.09 $(52.6) $(1.39)
*Diluted earnings per share for the twelve months ended December 31,
2006, excluding the impact of the mark-to-market losses on fuel
hedges, fleet transition costs, and restructuring charges and
adjustments has been calculated using the dilutive weighted-average
number of shares outstanding of 40.386 million.
In order to reconcile the diluted earnings per share on an adjusted
basis to the GAAP loss per share for twelve months ended December 31,
2006, the table above includes $0.17 per share, which represents the
impact of the additional shares that were used in the adjusted diluted
earnings per share. Additionally, $1.6 million of interest, net of tax,
on the convertible senior notes that were outstanding during the first
quarter of the year was added back to earnings for the twelve months
ended December 31, 2006 in order to derive the diluted earnings per
share on an adjusted basis.
The per share impact of the mark-to-market losses on fuel hedges, fleet
transition costs, and restructuring and impairment charges have been
presented in the table above using the basic shares outstanding of
37.939 million for the twelve months ended December
Alaska Airlines Financial and Statistical Data
Three Months Ended Twelve Months Ended
December 31, December 31,
Financial Data (in
millions): 2007 2006 %Change 2007 2006 %Change
Operating Revenues:
Passenger $612.8 $570.6 7.4 $2,547.2 $2,453.1 3.8
Freight and mail 21.3 21.6 (1.4) 94.2 93.4 0.9
Other - net 41.3 36.6 12.8 147.1 129.6 13.5
Total mainline
operating revenues 675.4 628.8 2,788.5 2,676.1
Passenger -
purchased capacity 71.9 3.4 NM 281.4 16.4 NM
Total Operating
Revenues 747.3 632.2 18.2 3,069.9 2,692.5 14.0
Operating Expenses:
Wages and benefits 191.0 190.4 0.3 752.9 743.3 1.3
Variable incentive
pay 2.3 10.4 (77.9) 13.5 27.7 (51.3)
Aircraft fuel,
including hedging
gains and losses 182.2 189.8 (4.0) 737.5 757.0 (2.6)
Aircraft maintenance 42.0 38.2 9.9 149.8 156.8 (4.5)
Aircraft rent 29.5 26.3 12.2 112.8 110.9 1.7
Landing fees and
other rentals 42.8 40.3 6.2 170.1 158.2 7.5
Contracted services 32.9 30.2 8.9 124.1 117.5 5.6
Selling expenses 30.0 31.5 (4.8) 129.3 141.5 (8.6)
Depreciation and
amortization 36.2 38.2 (5.2) 142.3 137.8 3.3
Food and beverage
service 12.1 12.2 (0.8) 46.9 48.3 (2.9)
Other 48.1 42.7 12.6 173.1 161.1 7.4
Fleet transition
costs - - NM - 189.5 NM
Restructuring
charges and
adjustments - (7.6) NM - 24.8 NM
Total mainline
operating expenses 649.1 642.6 1.0 2,552.3 2,774.4 (8.0)
Purchased capacity
costs 80.7 3.2 NM 302.8 14.3 NM
Total Operating
Expenses 729.8 645.8 2,855.1 2,788.7
Operating Income
(Loss) 17.5 (13.6) NM 214.8 (96.2) NM
Interest income 15.1 15.1 64.8 56.3
Interest expense (21.3) (19.8) (86.2) (73.3)
Interest capitalized 6.6 6.0 25.7 21.5
Other - net (2.7) 0.2 (3.1) (0.5)
(2.3) 1.5 1.2 4.0
Income (Loss) Before
Income Tax $15.2 $(12.1) $216.0 $(92.2)
Mainline Operating
Statistics:
Revenue passengers
(000) 4,191 4,107 2.0 17,558 17,165 2.3
RPMs (000,000)
"traffic" 4,498 4,243 6.0 18,451 17,822 3.5
ASMs (000,000)
"capacity" 6,020 5,755 4.6 24,208 23,278 4.0
Passenger load
factor 74.7% 73.7% 1.0pts 76.2% 76.6% (0.4)pts
Yield per passenger
mile (in cents) 13.62 13.45 1.3 13.81 13.76 0.3
Operating revenue
per ASM (in cents) 11.22 10.93 2.7 11.52 11.50 0.2
Passenger revenue
per ASM (in cents) 10.18 9.91 2.7 10.52 10.54 (0.2)
Operating expense
per ASM (in cents) 10.78 11.17 (3.5) 10.54 11.92 (11.6)
Aircraft fuel per
ASM (in cents) 3.02 3.30 (8.3) 3.04 3.25 (6.4)
Fleet transition
costs per ASM (a)
(in cents) - - NM - 0.81 NM
Restructuring
charges per ASM (a)
(in cents) - -0.13 NM - 0.11 NM
Operating expense
per ASM excluding
fuel,
restructuring
charges and fleet
transition costs
(a) (in cents) 7.76 8.00 (3.0) 7.50 7.75 (3.2)
GAAP fuel cost per
gallon $2.09 $2.18 (4.3) $2.08 $2.14 (2.6)
Economic fuel cost
per gallon (b) $2.48 $1.98 25.2 $2.20 $1.92 15.1
Fuel gallons
(000,000) 87.2 87.1 0.1 354.3 354.3 0.0
Average number of
full-time
equivalent
employees 9,672 9,485 2.0 9,679 9,322 3.8
Aircraft utilization
(blk hrs/day) 10.7 10.6 0.9 10.9 11.0 (0.9)
Average aircraft
stage length
(miles) 946 914 3.5 926 919 0.8
Operating fleet at
period-end 115 114 1 a/c 115 114 1 a/c
Regional Operating
Statistics:
RPMs (000,000) 287 9 NM 1,099 41 NM
ASMs (000,000) 386 15 NM 1,453 67 NM
NM = Not Meaningful
(a) See page 9 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(b) See page 11 for a reconciliation of economic fuel cost.
Horizon Air Financial and Statistical Data
Three Months Ended Twelve Months Ended
December 31, December 31,
Financial Data (in
millions): 2007 2006 % Change 2007 2006 % Change
Operating Revenues:
Passenger (a) $179.6 $155.0 15.9 $709.2 $633.1 12.0
Freight and mail 0.5 0.9 (44.4) 2.3 3.9 (41.0)
Other - net 1.8 2.9 (37.9) 6.9 7.0 (1.4)
Total Operating
Revenues 181.9 158.8 14.5 718.4 644.0 11.6
Operating Expenses:
Wages and benefits 51.1 49.0 4.3 201.2 189.3 6.3
Variable incentive pay 1.3 2.3 (43.5) 7.3 9.1 (19.8)
Aircraft fuel,
including hedging
gains and losses 38.3 30.0 27.7 138.8 116.5 19.1
Aircraft maintenance 23.1 23.9 (3.3) 92.0 73.9 24.5
Aircraft rent 15.7 17.3 (9.2) 65.6 69.3 (5.3)
Landing fees and other
rentals 14.1 11.6 21.6 56.9 46.9 21.3
Contracted services 7.2 6.9 4.3 27.1 27.0 0.4
Selling expenses 7.7 6.3 22.2 31.2 31.5 (1.0)
Depreciation and
amortization 8.6 4.9 75.5 33.9 18.5 83.2
Food and beverage
service 0.7 0.7 (0.0) 2.8 2.9 (3.4)
Other 12.3 9.9 24.2 48.0 46.9 2.3
Fleet transition costs 3.5 - NM 14.1 - NM
Total Operating
Expenses 183.6 162.8 12.8 718.9 631.8 13.8
Operating Income
(Loss) (1.7) (4.0) NM (0.5) 12.2 NM
Interest income 1.1 1.0 4.5 3.7
Interest expense (4.5) (1.6) (16.6) (7.4)
Interest capitalized 0.3 1.1 2.1 3.2
Other - net - - (0.1) -
(3.1) 0.5 (10.1) (0.5)
Income (Loss) Before
Income Tax $(4.8) $(3.5) $(10.6) $11.7
Combined Operating
Statistics: (a)
Revenue passengers
(000) 1,930 1,689 14.3 7,552 6,860 10.1
RPMs (000,000)
"traffic" 723 659 9.7 2,918 2,691 8.4
ASMs (000,000)
"capacity" 996 903 10.3 3,978 3,632 9.5
Passenger load factor 72.6% 73.0% (0.4)pts 73.4% 74.1% (0.7)pts
Yield per passenger
mile (in cents) 24.84 23.52 5.6 24.30 23.53 3.3
Operating revenue per
ASM (in cents) 18.26 17.59 3.9 18.06 17.73 1.9
Operating expenses per
ASM (in cents) 18.43 18.03 2.2 18.07 17.40 3.9
Aircraft fuel per
ASM (in cents) 3.84 3.32 15.4 3.49 3.21 8.8
Operating expense per
ASM excluding fuel
(b) (in cents) 14.59 14.71 (0.8) 14.58 14.19 2.8
Fleet transition costs
per ASM (b) (in cents) 0.35 - NM 0.35 - NM
Operating expense per
ASM excluding
fuel and fleet
transition costs
(b) (in cents) 14.24 14.71 (3.2) 14.23 14.19 0.3
GAAP fuel cost per
gallon $2.18 $2.19 (0.6) $2.14 $2.14 0.1
Economic fuel cost per
gallon (c) $2.54 $1.98 28.5 $2.28 $1.93 17.9
Fuel gallons (000,000) 17.6 13.7 28.5 64.8 54.3 19.3
Average number of
full-time equivalent
employees 3,887 3,670 5.9 3,806 3,611 5.4
Aircraft utilization
(blk hrs/day) 8.4 8.6 (2.3) 8.6 8.8 (2.3)
Operating fleet at
period-end 70 69 1 a/c 70 69 1 a/c
NM = Not Meaningful
(a) Represents combined information for all Horizon flights, including
those operated under Capacity Purchase Agreements (CPAs) with
Alaska and as Frontier Jet Express. See page 10 for additional line
of business information.
(b) See pages 9 and 10 for a reconciliation of these non-GAAP measures and
a discussion about why these measures may be important to investors.
(c) See page 11 for a reconciliation of economic fuel cost.
Note A: Pursuant to Regulation G, we are providing disclosure of the
reconciliation of reported non-GAAP financial measures to their most
directly comparable financial measures reported on a GAAP basis. We
believe that consideration of this measure of unit costs excluding fuel,
purchased capacity costs, and other noted items may be important to
investors for the following reasons:
* Cost per available seat mile (ASM) excluding fuel, purchased capacity
costs, and other special items is one of the most important measures
used by managements of both Alaska and Horizon and the Air Group Board
of Directors in assessing quarterly and annual cost performance and,
for Alaska Airlines, the operating results of the ''mainline''
operation, which includes the operation of the B737 and MD80 aircraft
fleets branded in Alaska Airlines livery.
* Cost per ASM excluding fuel, purchased capacity costs, and other
items as specified in our governing documents is an important metric in
the employee incentive plan that covers company management and
executives.
* By eliminating fuel expense from our unit cost metrics, we believe that
we have better visibility into the results of our non-fuel
cost-reduction initiatives. Our industry is highly competitive, and
characterized by high fixed costs, so even a small reduction in
non-fuel operating costs can result in a significant improvement in
operating results. In addition, we believe that all domestic carriers
are similarly impacted by changes in jet fuel costs over the long run,
so it is important for management (and thus investors) to understand
the impact of (and trends in) company specific cost drivers such as
labor rates and productivity, airport costs, and maintenance costs,
which are more controllable by management.
* Cost per ASM excluding fuel and purchased capacity costs is a measure
commonly used by industry analysts and we believe it is the basis by
which they compare our airlines to others in the industry. The measure
is also the subject of frequent questions from holders of our common
stock.
* By eliminating the impact of certain noted items, management is
provided the ability to measure and monitor performance both with and
without these special items. Management believes that the disclosure
of the impact of certain items such as the fleet transition costs and
restructuring charges is important to the reader as it provides
information on significant items that are not indicative of future
performance. Industry analysts and investors consistently measure the
Company's performance without these items for better comparability
between periods and between other airlines.
* Although we disclose our "mainline" unit revenues for Alaska to
eliminate those revenues associated with purchased capacity flying
performed by others on our behalf, we do not (nor are we able to)
present unit revenues excluding the impact that rising fuel costs have
had on ticket prices. This is a limitation of our non-GAAP measure
that excludes fuel from unit costs, as fuel represents nearly 30% of
our total mainline operating expenses, and fluctuations in our fuel
prices are often the driver of changes in unit revenues in the mid-to
long term. We would caution the readers of these financial statements
not to place undue reliance on unit costs excluding fuel as a measure
or predictor of future profitability.
The following tables reconcile our non-GAAP financial measures to the most
directly comparable GAAP financial measures for both Alaska Airlines, Inc.
and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.
(in millions, except for per ASM unit information)
Three Months Twelve Months
Ended December Ended December
31, 31,
Mainline unit cost reconciliations: 2007 2006 2007 2006
Mainline operating expenses $649.1 $642.6 $2,552.3 $2,774.4
Mainline ASMs 6,020 5,755 24,208 23,278
Mainline operating expenses
per ASM (in cents) 10.78 11.17 10.54 11.92
Mainline operating expenses $649.1 $642.6 $2,552.3 $2,774.4
Less: aircraft fuel (182.2) (189.8) (737.5) (757.0)
Less: fleet transition costs - - - (189.5)
Less: restructuring charges and
adjustments - 7.6 - (24.8)
Mainline operating expenses excluding
fuel, fleet transition costs, and
restructuring charges and
adjustments $466.9 $460.4 $1,814.8 $1,803.1
Mainline ASMs 6,020 5,755 24,208 23,278
Mainline operating expenses per ASM
excluding fuel, fleet transition
costs, and restructuring charges
and adjustments (in cents) 7.76 8.00 7.50 7.75
Three Months Twelve Months
Ended December Ended December
31, 31,
Reconciliation to GAAP income (loss)
before taxes : 2007 2006 2007 2006
Income (loss) before taxes, excluding
mark-to-market hedging gains
(losses), fleet transition costs,
and restructuring charges and
adjustments $(18.8) $(1.9) $172.7 $200.5
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting on fuel
hedges 34.0 (17.8) 43.3 (78.4)
Less: fleet transition costs - - - (189.5)
Less: restructuring charges and
adjustments - 7.6 - (24.8)
GAAP income (loss) before taxes as
reported $15.2 $(12.1) $216.0 $(92.2)
Horizon Air Industries, Inc.
(in millions, except for per ASM unit information)
Three Months Ended Twelve Months
December 31, Ended December 31,
Unit cost reconciliations: 2007 2006 2007 2006
Operating expenses $183.6 $162.8 $718.9 $631.8
ASMs 996 903 3,978 3,632
Operating expenses per ASM (in cents) 18.43 18.03 18.07 17.40
Operating expenses $183.6 $162.8 $718.9 $631.8
Less: aircraft fuel (38.3) (30.0) (138.8) (116.5)
Operating expenses excluding fuel $145.3 $132.8 $580.1 $515.3
ASMs 996 903 3,978 3,632
Operating expenses per ASM excluding
fuel (in cents) 14.59 14.71 14.58 14.19
Unit cost reconciliations-excluding
fleet transition costs:
Operating expenses $183.6 $162.8 $718.9 $631.8
Less: aircraft fuel (38.3) (30.0) (138.8) (116.5)
Less: fleet transition costs (3.5) - (14.1) -
Operating expenses excluding fuel and
fleet transition costs $141.8 $132.8 $566.0 $515.3
ASMs 996 903 3,978 3,632
Operating expenses per ASM excluding
fuel and fleet transition
costs (in cents) 14.24 14.71 14.23 14.19
Reconciliation to GAAP income (loss)
before taxes:
Income (loss) before taxes, excluding
mark-to-market fuel hedging gains
(losses) $(11.2) $(0.5) $(19.5) $23.2
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting on fuel
hedges 6.4 (3.0) 8.9 (11.5)
GAAP income (loss) before taxes as
reported $(4.8) $(3.5) $(10.6) $11.7
Line of Business Information:
Horizon brand flying includes those routes in the Horizon system not
covered by the Alaska and Frontier Capacity Purchase Agreements (CPA).
Horizon bears the revenue risk in those markets and, as a result, traffic,
yield and load factor impact revenue recorded by Horizon. In both CPA
arrangements, Horizon is insulated from market revenue factors and is
guaranteed contractual revenue amounts based on operational capacity. As
a result, yield and load factor information is not presented.
Three Months Ended December 31, 2007
Capacity and Mix Load Factor
Actual Current Point Change Point Change
(000,000) %Change %Total Yr-over-Yr Actual Yr-over-Yr
Brand Flying 568,100 30.0% 57% 8 70.3% (4.0)
Alaska CPA 369,202 39.8% 37% 8 NM NM
Frontier CPA 58,727 -70.9% 6% (16) NM NM
System Total 996,029 10.3% 100% - 72.6% (0.4)
Yield RASM
Actual (in cents) %Change Actual (in cents) %Change
Brand Flying 24.86 (7.7) 17.88 (13.7)
Alaska CPA NM NM 20.60 (1.1)
Frontier CPA NM NM 7.33 11.4
System Total 24.84 5.6 18.26 3.9
Twelve Months Ended December 31, 2007
Capacity and Mix Load Factor
Actual Current Point Change Point Change
(000,000) %Change %Total Yr-over-Yr Actual Yr-over-Yr
Brand Flying 2,086,047 19.6 52% 4 71.8% (2.4)
Alaska CPA 1,383,271 29.7 35% 6 NM NM
Frontier CPA 508,990 (38.1) 13% (10) NM NM
System Total 3,978,308 9.5 100% - 73.4% (0.7)
Yield RASM
Actual (in cents) %Change Actual (in cents) %Change
Brand Flying 26.14 (5.9) 19.20 (8.8)
Alaska CPA NM NM 20.49 (2.7)
Frontier CPA NM NM 6.77 6.0
System Total 24.30 3.3 18.06 1.9
NM= Not Meaningful.
Alaska Airlines Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended December 31,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $240.5 $2.76 $180.0 $2.07
Minus gains during the period on
settled hedges (24.3) (0.28) (8.0) (0.09)
Economic fuel expense $216.2 $2.48 $172.0 $1.98
Minus the gain, or plus the loss,
recognized during current period for
contracts settling in future periods (47.6) (0.55) 7.2 0.08
Plus cumulative gains recognized in
prior periods for contracts
settled in current period 13.6 0.16 10.6 0.12
Net adjustments (34.0) (0.39) 17.8 0.20
GAAP fuel expense $182.2 $2.09 $189.8 $2.18
Fuel gallons 87.2 87.1
Twelve Months Ended December 31,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $825.7 $2.33 $765.6 $2.16
Minus gains during the period on
settled hedges (44.9) (0.13) (87.0) (0.24)
Economic fuel expense $780.8 $2.20 $678.6 $1.92
Minus the gain, or plus the loss,
recognized during current period for
contracts settling in future periods (62.8) (0.18) 5.1 0.01
Plus cumulative gains recognized in
prior periods for contracts
settled in current period 19.5 0.06 73.3 0.21
Net adjustments (43.3) (0.12) 78.4 0.22
GAAP fuel expense $737.5 $2.08 $757.0 $2.14
Fuel gallons 354.3 354.3
Horizon Air Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended December 31,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $49.3 $2.80 $28.3 $2.07
Minus gains during the period on
settled hedges (4.6) (0.26) (1.3) (0.09)
Economic fuel expense $44.7 $2.54 $27.0 $1.98
Minus the gain, or plus the loss,
recognized during current period for
contracts settling in future periods (9.0) (0.51) 1.2 0.09
Plus cumulative gains recognized in
prior periods for contracts
settled in current period 2.6 0.15 1.8 0.12
Net adjustments (6.4) (0.36) 3.0 0.21
GAAP fuel expense $38.3 $2.18 $30.0 $2.19
Fuel gallons 17.6 13.7
Twelve Months Ended December 31,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $156.2 $2.41 $119.1 $2.19
Minus gains during the period on
settled hedges (8.5) (0.13) (14.1) (0.26)
Economic fuel expense $147.7 $2.28 $105.0 $1.93
Minus the gain, or plus the loss,
recognized during current period for
contracts settling in future periods (12.9) (0.20) 0.8 0.01
Plus cumulative gains recognized in
prior periods for contracts
settled in current period 4.0 0.06 10.7 0.20
Net adjustments (8.9) (0.14) 11.5 0.21
GAAP fuel expense $138.8 $2.14 $116.5 $2.14
Fuel gallons 64.8 54.3
Air Group Fuel Hedge Positions:
Approximate Approximate
% of Expected Crude Oil
Fuel Requirements Price per Barrel
First quarter 2008 50% $66.88
Second quarter 2008 50% $72.60
Third quarter 2008 33% $68.62
Fourth quarter 2008 34% $68.21
Full year 2008 42% $69.23
First quarter 2009 11% $77.84
Second quarter 2009 11% $76.73
Third quarter 2009 6% $68.25
Fourth quarter 2009 5% $67.20
Full year 2009 8% $74.07
Air Group Capacity Guidance:
The following table summarizes Alaska's and Horizon's expected increase in
capacity as measured in available seat miles for 2008.
Alaska Horizon
First quarter 2008 5% - 6% 1%
Full year 2008 3% (4)%
Alaska and Horizon Unit Cost Forecast
During our quarterly earnings conference call, we expect to discuss
forward-looking forecasted unit cost information for the 2008. This
forecasted unit cost information includes non-GAAP unit cost estimates
which are summarized in the following table together with the most
directly comparable GAAP unit cost for both Alaska Mainline and Horizon
Combined:
Alaska Airlines-Mainline
Forecast of cost Forecast of fuel Forecast of total
per available cost per operating cost per
seat mile, available available
excluding seat mile (cents) seat mile,
fuel (cents) as reported on a
GAAP basis (cents)
First quarter 2008 7.8 4.1 11.9
Full year 2008 7.5 3.8 11.3
Horizon Air Combined
Forecast of cost Forecast of fuel Forecast of total
per available cost per operating cost per
seat mile, available available
excluding seat mile (cents) seat mile,
fuel (cents) as reported on a
GAAP basis (cents)
First quarter 2008 15.6 5.5 21.1
Full year 2008 14.6 5.1 19.7
Our forecast of fuel costs is based on anticipated gallons consumed and
estimated raw fuel cost per gallon. The estimate does not include the
benefit of hedges that will settle in the period, nor does it include an
estimate of mark-to-market adjustments in our fuel hedge portfolio. Given
the volatility of fuel prices and the likely mark-to-market adjustments on
our fuel hedge portfolio, readers should be cautioned that actual fuel
expense will likely differ from the forecast above.
Air Group Operating Fleet
The following table displays the fleet count for Alaska and Horizon as of
the end of 2007 and the anticipated fleet count as of December 31, 2008:
Actual Actual Planned
Seats 31-Dec-06 31-Dec-07 31-Dec-08
Alaska Airlines
737-200C** 111 2 - -
MD80 140 23 14 -
737-400 144 39 34 32
737-400F** - 1 1 1
737-400C** 72 - 5 5
737-700 124 22 20 20
737-800* 157 15 29 46
737-900 172 12 12 12
Totals 114 115 116
Actual Actual Planned
Seats 31-Dec-06 31-Dec-07 31-Dec-08
Horizon Air
Q200 37 28 16 10
Q400 74-76 20 33 36
CRJ-700 70 21 21 20
Totals 69 70 66
* The total includes one additional leased aircraft in 2008.
** F=Freighter; C=Combination freighter/passenger
Air Group Year-to-Date and Projected Capital Expenditures
(In Millions)
Total 2008
Alaska $465
Horizon 105
Total Air Group $570
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: Media, Amanda Tobin Bielawski, Media Relations Manager,
+1-206-392-5134, or Investor|analysts, Shannon Alberts, Managing Director of
Investor Relations, +1-206-392-5218, both of Alaska Air Group, Inc.
Web site: http://www.alaskaair.com/